Fresenius Medical Care
Fresenius Medical Care achieved an excellent performance in 2007. Sales increased by
14%. Net income rose by impressive 34%. Operating performance in dialysis care was
strong. Dialysis product sales grew substantially.
Fresenius Medical Care is the world’s leading provider of dialysis products and dialysis care for patients with chronic kidney failure. In 2007, we treated 173,863 patients at 2,238 dialysis clinics worldwide. The number of treatments increased by 11% to 26.4 million. We market our comprehensive range of products in more than 100 countries. A global production network ensures reliable patient care at any time. Fresenius Medical Care’s largest plants are in the United States, Germany and Japan.
BUSINESS DEVELOPMENT
In 2007, sales rose by 14% to US$ 9,720 million (2006: US$ 8,499 million). Organic growth contributed 6% to sales and acquisitions 7 %. Divestitures had a negative impact of 1%. In constant currency, sales increased by 12%. North America contributed 69%, Europe 22% and the rest of the world 9% to sales. Dialysis care accounted for 74% of sales and dialysis products for 26%.
EBIT increased by 20% to US$ 1,580 million (2006: US$ 1,318 million; adjusted for the gain from the divestiture of US dialysis clinics and one-time expenses related to the Renal Care Group acquisition US$ 1,315 million). The EBIT margin was 16.3% (2006: 15.5%).
Net income rose by 34% to US$ 717 million (2006: US$ 537 million, including one-time expenses of US$ 37 million).
DIALYSIS CARE
Fresenius Medical Care is the market leader in dialysis care in North America. We treated 34% of all dialysis patients in the United States in 2007.
The growth in dialysis care in North America was driven by the good operating performance from our existing activities. The consolidation of Renal Care Group for the full year has been a further contributing factor. Major growth drivers were an increased number of treatments and a higher average reimbursement per dialysis treatment. In 2007, the average revenue per dialysis treatment in the United States was US$ 327, US$ 6 more per treatment than in 2006. The improvement in revenue per treatment is mainly due to increases in the reimbursement rates we receive from private payors and the legislated 1.6% increase from public health insurance plans (composite rate).
| FRESENIUS MEDICAL CARE BY REGIONS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| North America | Europe | Latin America | Asia-Pacific | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales (in million US$) | 6,663 | 2,116 | 400 | 541 | 9,720 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis patients (December 31) | 121,431 | 26,902 | 17,741 | 7,789 | 173,863 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis clinics (December 31) | 1,602 | 362 | 169 | 105 | 2,238 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treatments (in million) | 18.5 | 4.1 | 2.7 | 1.2 | 26.4 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DIALYSIS CARE IN NORTH AMERICA | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | Change | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales (in million US$) | 6,002 | 5,464 | 10% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis patients (December 31) | 121,431 | 117,855 | 3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis clinics (December 31) | 1,602 | 1,560 | 3% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treatments (in million) | 18.5 | 16.9 | 9% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Outside North America – in the International segment – dialysis care is a highly fragmented market. Here, Fresenius Medical Care is also the largest provider and market leader. Sales in the International segment rose by 33% (23% in constant currency). In particular our operating performance in the Asia-Pacific region and in Latin America was successful in 2007.
Reimbursement policies and market access differ considerably from country to country. In some countries private companies are not permitted to operate dialysis clinics. However, clinics privatizations, especially in Eastern Europe and Asia, offer additional growth opportunities.
| DIALYSIS CARE INTERNATIONAL | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2007 | 2006 | Change |
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| Sales (in million US$) | 1,211 | 913 | 33% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis patients (December 31) | 52,432 | 45,662 | 15% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Dialysis clinics (December 31) | 636 | 548 | 16% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Treatments (in million) | 8.0 | 6.9 | 16% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
DIALYSIS PRODUCTS
Fresenius Medical Care achieved strong growth with dialysis products in 2007. The company is the world market leader for dialysis products, with a market share of about 31%.
Sales of dialysis products increased by 18% to US$ 2,507 million. The growth in North America as well as outside North America (International segment) was 18%.
| SALES DIALYSIS PRODUCTS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| in million US$ |
2007 | 2006 | Change |
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| Sales | 2,507 | 2,122 | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales North America | 661 | 561 | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sales International | 1,846 | 1,561 | 18% | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The main dialysis products are dialyzers, hemodialysis machines and dialysis solutions, as well as products for peritoneal dialysis. Dialyzers and dialysis machines are our top-selling products. Out of appproximately 165 million dialyzers sold worldwide, Fresenius Medical Care produced about 75 million, or approximately 45%. In the United States alone, we achieved a new record with the sale of over 30 million Optiflux dialyzers. At the end of 2007, more than three-quarters of all hemodialysis patients in the United States were being treated with single-use dialyzers made by Fresenius Medical Care. Of the approximately 55,000 dialysis machines sold worldwide in 2007, over 50% were produced by Fresenius Medical Care. The international marketing of our 5008 therapy system, as well as the ongoing demand for the 4008 therapy system, contributed significantly towards this success. In the US market our 2008K-series dialysis machines continued to be in strong demand. Our market share in these two product groups – dialyzers and dialysis machines – exceeded 70% of the independent market. We define the independent market as all dialysis clinics that do not belong to a major US wide dialysis care provider, such as Fresenius Medical Care or DaVita.
Business involving peritoneal dialysis products fell slightly short of our expectations. While the number of patients worldwide rose by about 6%, the number of patients treated with our products remained unchanged at approximately 32,500. Our world market share for peritoneal dialysis is 18%. Our share of the US market was 29% in 2007.
EXPANSION OF OUR INTERNATIONAL BUSINESS
At the beginning of 2007 we acquired a majority stake in the Taiwanese dialysis provider Jiate Excelsior Co. Ltd. The company contributed approximately US$ 85 million to sales in 2007. Through the acquisition, Fresenius Medical Care became the leading provider of dialysis care in the Asia-Pacific region, treating about 7,800 patients in 2007.
Taiwan has a prevalence rate of over 2,000 patients per one million population – the second-highest worldwide after Japan. At the end of 2006, there were about 48,000 patients with chronic kidney failure. The number of patients is rising at a rate of about 6% per year in Taiwan.
RENAL PHARMACEUTICALS
Broadening the product portfolio with renal pharmaceuticals is an integral part of Fresenius Medical Care’s growth strategy. Here, we combine renal pharmaceuticals with our dialysis products and patient care. It is our goal to offer holistic therapy concepts which lead to even better treatment results for dialysis patients in the future.
We estimate that the global market for renal pharmaceuticals excluding erythropoiesis-stimulating agents (ESAs) is worth over US$ 2.2 billion. Fresenius Medical Care aims to generate sales of about US$ 400 million in this market by the year 2010.
Following the acquisition of the phosphate binder PhosLo in 2006, Fresenius Medical Care published the results of two medical studies in the past year which once again confirm the safety and efficacy of PhosLo for patients with chronic kidney failure. At the beginning of 2007, Fresenius Medical Care submitted an application with the U.S. Food & Drug Administration (FDA) to extend the PhosLo label indication to include chronic kidney disease pre-dialysis. In October 2007, the FDA’s Cardiovascular and Renal Drugs Advisory Committee recommended that the FDA extend the use of phosphate binders to pre-dialysis patients with hyperphosphatemia.
Another focus of our renal pharmaceutical activities was the regulatory approval of PhosLo and OsvaRen in European countries apart from Germany. In 2007, we applied for the approval of OsvaRen in almost all EU members states. Subject to its authorization by the mutual recognition process we intend to introduce the drug in all EU markets in 2008. We also applied for approval of PhosLo in selected countries and intend to start market introduction in 2008.
Setting up an effective global sales and marketing organization for renal pharmaceuticals was another key task in 2007. With that, we further strengthen this business field and support the development of new products.
In 2007 we entered into an agreement with the pharmaceutical and biotech company Amgen for marketing the drug Aranesp (darbepoetin alfa) in Europe. Aranesp belongs to the group of ESAs and is prescribed to patients with chronic kidney disease for treating blood deficiency (anemia). Under the agreement Fresenius Medical Care will support Amgen in providing nephrologists and other dialysis specialists with scientific information about treating anemia. Amgen will remain solely responsible for the product. The new agreement runs for three years.
More information on renal pharmaceuticals can be found here.
HOME DIALYSIS
With our “Continuum“ program initiated several years ago we aim to further expand our global market share in home dialysis. For patients with chronic kidney failure, home dialysis is a safe, low-cost treatment option that can easily be integrated into their day-to-day life. It requires more responsibility from the patient, but increases flexiblity. Under the Continuum program, patients not only choose the form of treatment – hemodialysis or peritoneal dialysis – but also decide whether they want the dialysis to be done in a clinic or at home. Home dialysis is still not as common as clinic dialysis, but we expect the need to increase in the long term. Rising patient numbers and further cost pressure will lead to growing demand for home dialysis. We estimate that more than 200,000 patients worldwide could undergo a home hemodialysis or peritoneal dialysis by 2010. At the end of 2007, we cared for about 32,500 peritoneal dialysis patients and more than 3,500 home hemodialysis patients, making us the world’s largest provider in the area of home hemodialysis. Around half of all home hemodialysis patients use our dialysis machines and dialyzers.
To expand our position in this growing field Fresenius Medical Care acquired the US company Renal Solutions, Inc. (RSI) in 2007. For more information please refer to the Research & Development chapter.
LABORATORY SERVICES
Nephrologists rely on extensive laboratory tests to be able to determine dialysis therapy for each patient individually. The quality of the test results is important for the quality of the treatment and thus for the patient’s quality of life. In 2007, our subsidiary Spectra Laboratories performed laboratory services for about 150,000 dialysis patients. That was 3% more patients than in 2006. Spectra Laboratories is the largest clinical laboratory for dialysis-related services in North America, with a market share of about 46% and over 49 million laboratory tests in the past year.
In 2007, we concentrated several laboratory facilities at a central laboratory in California to respond to customer requests faster and more effectively. We also opened an environmental laboratory in New Jersey that specializes in the analysis of ultra-pure water. The high quality of the specially purified water is a key prerequisite for good treatment results in dialysis.
DISEASE MANAGEMENT
Under the name “Renaissance Health Care”, Fresenius Medical Care operates the largest Disease Management program for privately insured kidney patients in the United States. Disease Management goes beyond conventional dialysis therapy. To avoid unnecessary hospital stays and save costs, it includes preventive measures, the coordination of health care services and an active treatment of other, so-called co-morbid diseases such as diabetes and cardiovascular disorders. As agreed with our client Health Management Corporation, we now also care for patients with chronic kidney disease in the US states of Georgia and Virginia. Health Management Corporation is a subsidiary of Anthem/Wellpoint, one of the largest private health insurers in the United States with 34 million members. Altogether, by the end of 2007 we cared for approximately 4,000 patients in the United States under our Renaissance Health Care program.
Our subsidiary Fresenius Medical Care Health Plan has been operating a demonstration project for patients with chronic kidney failure since 2006 on behalf of the Center for Medicare and Medicaid Services (CMS). CMS oversees the public US health insurance programs Medicare and Medicaid. Under the terms of this project, Fresenius Medical Care receives a monthly per-patient fee rather than billing for each individual service. The agreed fee covers all health care services for patients included in the program.
We presented the first interim results of the demonstration project in the past year. Among other things, these revealed that approximately one-third of the average costs per patient of 80,900 US$ were caused by hospital stays. This indicates the cost-saving potential of in-hospital care. Overall, the demonstration project’s quality objectives were met and even exceeded in some cases. The number of hospitalizations dropped significantly: The average of 1.7 hospitalizations per patient achieved in the first year of the project corresponds to an improvement of 15% compared with other data available for the whole United States. Altogether, about 1,000 patients took part in this project by the end of 2007.
Despite the good interim results, the project’s final outcome remains open: CMS will be considering further action only at the end of the project’s four-year duration. We are convinced that with this comprehensive care program we can achieve even better treatment results for our patients and also reduce costs. As a vertically integrated provider of dialysis care and products we consider ourselves well positioned to profit from the trend towards Disease Management programs.
For further information, please see Fresenius Medical Care’s Annual Report 2007 or www.fmc-ag.com.